I’m talking about one of the few things I actually agree with the US Chamber of Commerce on: the preservation and re-strengthening of “attorney-client privilege.”

Since passage of the Attorney-Client Privilege Protection Act in the House of Representatives in November, the US Chamber has actively worked to move the legislation through the Senate Judiciary Committee. The Act has garnered considerable support, including the endorsement of the American Bar Association and fifteen other bar organizations. Other supporters include the American Civil Liberties Union, the Association of Corporate Counsel, The Business Roundtable, The Financial Services Roundtable, and the National Association of Manufacturers. At the March 26 2nd Annual Capital Markets Summit the Chamber highlighted the importance of the Attorney-Client Privilege Protection Act with a panel discussion that brought together experts on the issue. The Chamber will continue to work to focus lawmakers on the assault on the attorney-client privilege.

“The privilege to consult with an attorney freely, candidly, and confidentially is a fundamental Constitutional right that is under attack,” said Donohue. “Recent policy changes at the Department of Justice and the Securities and Exchange Commission have permitted and encouraged the government to demand or expect companies to waive their attorney-client privilege during an investigation.”

The DOJ, SEC, and other enforcement agencies routinely require or expect waivers of this privilege, creating an untenable situation for businesses, their employees, and attorneys. If people cannot trust the confidentiality of their legal advisors, they will be much less likely to raise and address problems, such as complying with laws—including Sarbanes-Oxley—and uncovering fraud.

Secured House passage of the Attorney-Client Privilege Protection Act of 2007. This legislation would curtail the federal government’s ability to demand that companies waive attorney-client and work product privileges in order to receive credit for cooperating during an investigation. It would also prevent prosecutors from pressuring companies into firing employees, or withholding legal fees of employees, who are under investigation.

The March 26th panel on this subject, part of the Capital Markets Summit, included:

N. Richard Janis, a Partner in Janis, Schuelke and Wechsler, LLP
Matthew Miner, Chief Crime Counsel, US Senate Committee on the JudiciaryAndrew Weissmann, a Partner at Jenner and Block (Mr. Weissmann recently testified before the Senate Judiciary Committee on this subject and used a great, big, lawyer word – amanuensis . Link to testimony here.)

This panel explained the legislative initiative noted above and elaborated on the issues and problems associated with the erosion of attorney-client privilege for corporations. Under current Administration policy, a corporation as a legal entity will get credit if it waives its right to attorney-client privilege for the results of internal investigations, for example. However, this panel felt that the corporation actually loses in a bigger way.

The confidentiality of internal documents and due process regarding discovery of those documents by either an enforcement arm of the US government or an outside third party once privilege is waived are impeded. Further erosion of attorney-client privilege will continue to impede companies’ ability to conduct proper investigations and maintain the trust of their employees.

The latter impact is more insidious, from my perspective. The erosion of any trust that may still exist between a company’s executives and its employees when potential wrongdoing is suspected and investigated is destroying corporate life. One of the panelists raised the most obvious example of an employee being interviewed for an investigation by the corporation’s attorneys or hired investigators. Unsophisticated employees do not often understand that the General Counsel and his representatives are attorneys for the corporation not their attorneys. The employee has no attorney-client privilege protection under these circumstances. But the company has the right to protect that conversation and often won’t, if threatened with criminal conviction of the company.

We have seen instances of this “hanging the employees out to dry” by the Big 4.

See my discussion of KPMG and Sidley and Austin partners left to their own devices in the tax shelter case as a result of this US Administration policy. There have been corporate cases, also, hence the attention by the US Chamber.

So my question to the panel was this:

“What about the opposite problem? What about the example of companies or firms putting everything possible under privilege or work product doctrine in order to protect the information from discovery, but then impeding the activities of the company’s or firm’s internal and external auditors? Can too much privilege impede the free sharing of information within an organization and with those responsible for protecting shareholders (external auditors)?”

All of the panelists responded that this was an excellent point and could present a problem. However, a prosecutor or plaintiff’s attorney can challenge the classification of information as privileged or work product doctrine. The proposed legislation does not address the conflict between a company and its external auditor with regard to disclosure of “privileged ” or “work product doctrine” information. It also does not address any contrived internal constraints on disclosure to internal audit or a compliance function.

Thanks for subscribing to the re: The Auditors feed. Please tell a colleague about the blog. Drop me a line at fmckenna@mckennapartners.com if you have a comment or complaint.

I agree that putting employees of Corporations in vulnerable positions is undesirable, but that’s the very reason we need to hold those Companies open and accountable. The following is excerpted from It’s Time to Build a New Corporate Democracy by Ian Williams (The Washington Spectator, 3/15/08):“The lax enforcement of existing securities law by the SEC highlights the question: just who are the corporations? In law, and in the traditional mythology of the free enterprise system, corporations are entities owned by their shareholders. But between the SEC, the courts of Delaware, and the federal judiciary, it has become clear that the shareholders have as much power as customers – the power to walk away if they do not like what the CEO and his associates are doing.

The federal courts, in a position as scandalous as their misreading of “original intent” that provides first Amendment free-speech rights to multimillion-dollar political spending, refuse to reconsider the position that the Fourteenth Amendment provides “personhood” and citizens’ rights to corporations.

It is usually rights and privileges and not duties that corporations invoke. Corporations litigate their own free-speech rights and even sue for libel to silence their critics. But when was the last time you heard of a corporation being imprisoned, let alone executed, for any crime it committed?”

Unless or until corporations are held to the same legal standards as individuals, no attorney-client privileges.

[…] of America (BAC) is in the news again today. The reason is one of my favorite subjects, attorney-client privilege. From the New York Attorney General’s (NYAG) letter to Bank of America’s attorney, Lewis J. […]

[…] pipes in. As expected, they are on the side of their corporate management constituency. Although I agree with their position about erosion of attorney client privilege, I do not agree with their position regarding this privilege when it comes to information requested […]

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Francine McKenna (@retheauditors) is the Transparency Reporter at MarketWatch.com, a Dow Jones publication, where her work is also featured frequently in the Wall Street Journal. McKenna had more than twenty-five years of experience in consulting and professional services including tenure at two Big 4 firms, both in the US and abroad before becoming a journalist. Look for her prior columns, "Accounting Watchdog" at Forbes.com and "Accountable" at American Banker. For more information, click "About" at the bottom of this page. For more information contact Francine McKenna, fmckenna@mckennapartners.com